“Unfortunately, the EU’s projections involve extremely wishful thinking. For one, they assume an impossible level of austerity: Greece must run an average budget surplus (excluding interest payments) of 3.4 percent of GDP for a decade, then 2.2 percent until the year 2060—something that no euro-area country with such a precarious economic history has ever done. Bringing those projections down to a merely improbable 2 percent and 1 percent, and using growth and interest-rate estimates from the International Monetary Fund, yields a very different picture: [Chart] […]
Over the next several decades, even in an optimistic scenario, Greece will have to borrow hundreds of billions of euros from private investors to pay off its official creditors. If those investors think the government’s debts are out of control, they’re bound to pull back—and Europe’s leaders will face yet another Greek crisis.
The obvious solution is for the EU to provide Greece with genuine debt relief. The sooner, the better.”